Agefi Luxembourg - mars 2026

AGEFI Luxembourg 38 Mars 2026 Emploi / Formations O n 17 September 2025, the Lux- embourgAdministrative Tri- bunal ( Tribunal Administratif, 17 septembre 2025, n°47603 ) (the “Ad- ministrative Tribunal” or the “Tri- bunal”) had to rule onwhether a domestic permanent establish- ment (« PE ») existed, based on the facts and circum- stances of the case. Summary of the case InApril 2018, the Luxembourg tax authorities issued a lump- sum assessment ( taxation d’of- fice ) under §217 of the General Tax Law ( Abgabenordnung, “ AO ”) against a lawfirmconstituted under the legal form of a partnership ( société en commandite simple , “ SCS ”) after the SCS had failed to file its tax return for the fiscal year (“ FY ”) 2015 in due course. In July 2018, the SCS filed an administrative claimseeking the annulment of the assessment, arguing that the taxable basis determined by the tax officewas sub- stantially different fromreality. This claimwas left unanswered by the Director of the Luxembourg tax authorities ( Administration des contributions di- rectes , “ ACD ”). In parallel, between 2018 and 2021, the main share- holderoftheSCS–aUK-incorporatedentity(the“ UK entity ”orthe“ claimant ”)–filedLuxembourgtaxre- turns for the FYs 2015 to 2019. For Luxembourg tax purposes,theUKentitywastreatedasacollectiveen- titycomparabletoaLuxembourgcorporatetaxpayer underthelegalformcomparisonmethod( Rechtstype- nvergleich ). InApril 2020 andMay 2021, the tax office in charge issued the corresponding tax assessments, whichweresubsequentlychallengedbytheclaimant through several administrative claims. Thedisputeprimarily concerned the classificationof the claimant’s income in Luxembourg (i.e. commer- cial income under Article 14 of the Luxembourg in- come tax law (“ LITL ”) vs. liberal profession income underArticle 91LITL) and,more fundamentally, the existenceof aLuxembourgPE. TheLuxembourg tax authorities took the view that the UK entity carried out professional activities in Luxembourg through a domestic PE, fromwhich it managed its client base and generated Luxembourg-sourced business prof- its. On this basis, the authorities considered that the company was subject to corporate income tax (“ CIT ”) andmunicipal business tax (“ MBT ”) on the profits attributable to that PE. Insupportofthisposition,thetaxofficereliedonsev- eral factual elements, including: - the claimant’s declared Luxembourg-sourced in- come, - the existence of a Luxembourg address fromwhich the activitieswere conducted, -theroleofitsrepresentativeinLuxembourginman- aging clients, and - the claimant’s significant participation in the SCS through which the professional activities were per- formed. Accordingly,thetaxofficereachedtheconclusionthat the claimant was not merely a passive holder of the participation,butactuallyengagedinsubstantivepro- fessional activities inLuxembourg. Ontheotherhand,theUKentityarguedthatthedec- laration of domestic income in its tax returns should not be interpreted as an admission that it had a PE in Luxembourg. To the contrary, it explained that, due to the absence of a specific box in the tax return form, it reported the incomegeneratedby the (transparent) SCSfortheFYs2015-2019underthelinerelatingtonet income from the exercise of an independent profes- sional activity inLuxembourg. Thiswas alsoclarified in an annex to the tax returnwhere the UK entity in- dicated that its profits derived from its participation inaLuxembourgtransparententity,whichitselfgen- erated exclusivelyprofessional income. The claimant also argued that its organizational structure pursued legitimate commercial objectives – including interna- tionalclientdevelopmentandpartnerliabilityprotec- tion – rather than tax avoidance. Inaddition,theclaimantmaintainedthatboththeUK entityandtheSCScarriedoutpurelycivil/liberalpro- fessionalactivitiesandthereforeshouldnotbesubject toMBT (the CIT charge, however, was not disputed between the parties). More specifically, the claimant contended that it did not have its own operational presence, staff or decision-making in Luxembourg and that the activities of the SCS could not be attrib- uted to it. It further asserted that its income shouldbe characterized as income from a liberal profession rather than commercial income. InMarch 2022, theDirector of theACD issued a joint decisionrejectingtheadministrativeclaims,thuscon- firmingthetaxoffice’sposition.Dissatisfiedwiththat outcome, the claimant subsequently brought an ap- peal before theAdministrative Tribunal. Judgment of theAdministrative Tribunal In this case at hand, the main issue disputed by the partieswaswhethertheDirectoroftheACDwascor- rectindeterminingthattheclaimanthadaPEinLux- embourg and that its income should be treated as commercial profits underArticle 14LITLand subject toMBT for the FYs 2015-2019. Existenceof adomesticPEandMBT liability for FYs 2015–2019 The Tribunal began by looking at §2 of the MBT law ( Gewerbesteuergesetz , “ GewStG ”), which gov- erns MBT. This provision sets out two criteria for tax liability: -theactivitymustgeneratecommercialprofitsunder Article 14 LITL, and - itmust be carriedout throughaPE inLuxembourg. Forcompanieswithsharecapital(corporations)how- ever, §2 No. 2 GewStG overrides the first criterion, meaning that all activities, even non-commercial by nature, are treated as commercial solely by virtue of the company’s legal form. The Tribunal emphasized that this rule applies equallytodomesticandforeigncompanieswithshare capital, consistent withdecades of German andLux- embourgishcaselaw.Itensuresthatresidentandnon- resident companies are treated the same, and that MBT captures all indigenous activity without re- gard to the company’s place of residence. In the case at stake, thepartieswere alignedon the fact that the claimant was a UK entity qualifying as acapitalcompanybasedonArticles159and160 LITL. The judges then examined whether the claimant had a PE in Luxembourg. The Tribu- nal observed that the claimant reportedprof- its derived from the SCS that generated professional income. This income was notearneddirectlybytheclaimantitself, so the mere declaration should not be sufficient toprove theexistenceof aPE. Allegations that theUKentity’s repre- sentative handled clients from Lux- embourg were unsubstantiated. Evidence showed that he had been resident inMonaco since 2012, andnoev- idence was presented that he carried out any busi- ness on behalf of the claimant fromLuxembourg. TheTribunal further observed that the claimant dis- putedtheallegationthatitlackedprofessionalprem- ises andheld that the taxauthorities’mereassertions in this regard, unsupported by objective evidence, were insufficient to demonstrate that the claimant carriedonactivities inLuxembourg inamanner sat- isfyingtherequirementsof§16StAnpGtorecognize a PE. The Tribunal therefore rejected the tax author- ities’ position that a PE existed in Luxembourg and held that the claimant could not be subject toMBT. UnderArticles160(1)and156oftheLuxembourgin- come tax law (“ LITL ”), non-resident entities should only be taxed on domestic-sourced commercial in- come derived through a LuxembourgPE. In the ab- sence of such a PE, the claimant could not be regarded as earning taxable commercial profits in Luxembourg. Characterizationoftheincomeascommercialincome Having denied the existence of a PE, the Tribunal turned to the nature of the income. TheUKentity ar- gued that the income derived from a liberal profes- sion, not from commercial activity, and therefore should not be subject to Luxembourg MBT. On the other hand, based onArticles 160 and 156 LITL, the taxauthoritieswereof theviewthat if thepresenceof adomesticPEwereestablished,theincomeoftheUK entity derived from the activities “exercised in Lux- embourg”shouldbetreatedascommercialprofit,re- gardless of the taxpayer’s characterization of its activities as civil/liberal profession income. Inthatmatter,Article160LITL (1) indeedprovidesthat “ entities of a collective nature referred to inArticle 159 that have neither their registered office nor their central admin- istration in the territory of the Grand Duchy are subject to corporate income tax on their domestic-source income within the meaning of Article 156 ” while Article 156 LITL (2) clarifiesthatthefollowing“ areconsidereddomes- tic-source income of non-resident taxpayers: 1. commercial profits within the meaning of Articles 14 and 15: (a) where such profits are realized directly or indirectly through a permanent establishment or a permanent rep- resentative in the Grand Duchy […]” However, having already excluded the existence of a PE, the Tribunal ruled that the claimant did not gen- erate commercial profits subject to Luxembourg do- mestic taxation, thereby invalidating the tax authorities’ position. Furthertotheaboveandforthesakeofcompleteness, the judgment also clarified that the claimant’s posi- tions regarding the potential applicability of a tax credit based onArticle 152bis LITL and a net wealth tax reduction based on §8 of the net wealth tax law ( Vermögensteuergesetz )shouldnolongerbeconsidered. Key takeaways This decision is notable as it dealswith the character- izationof adomesticPE inLuxembourg, rather than themore commonly challenged scenario of foreign PEs (3) .We are indeedused to seeingPE cases lost by taxpayers before the Administrative Tribunal due to the absence of sufficient evidence of the existence of foreignPEs. In this case, theTribunal emphasized that the factual assessment remains the same: a PE exists only if there is clear evidence of a fixed place of business through which the company operates commercially inLuxembourg.Meredeclarations of local income or the presence of a representative are not sufficient. This is significant: first, because non-resident tax- payers may lack familiarity with Luxembourg’s specific tax compliance requirements (as illustrated in this case), and second, because representatives may be present for legitimate commercial reasons, not to create a PE. Had the Tribunal accepted such assumptions, it could have resulted in significant adverse tax consequences for the non-resident tax- payer. Thisdecision reinforces theprinciple that do- mestic PEs, like foreign ones, require concrete operational presence; administrative filings or indi- rect involvement alone do not trigger PE status. In- deed, the burden of proof regarding PEs can be demanding and burdensome, whether for taxpay- ers or, in this case, the tax authorities. On a side note, the Tribunal also considered a poten- tial abuse of law under §6 of the tax adaptation law ( Steueranpassungsgesetz ,“ StAnpG ”)andreaffirmedin that regard that abuse cannot be inferred from un- usual legal structures alone. To prove abuse, the tax authorities are legally required todemonstrate: - the use of private lawforms and institutions, - a reductionof the tax burden, - the use of an inappropriate path, and - the absence of valid commercial (i.e., non-tax) reasons. In the situation under review, the claimant provided a credible business rationale, including international client outreach and protection of partners’ liability, whiletheStateofferedonlygeneral,unsupportedas- sertions. Consequently, the Tribunal found that the abuse allegationwas unsubstantiated. Finally, an appeal has been lodged against this judg- ment before theAdministrativeCourt ofAppeal.We stand ready, upon the release of this decision, to de- termine if the Court aligns its reasoning with that of theAdministrative Tribunal. Emilien LEBAS, Partner, Head of International Tax, Tax controversy & dispute resolution leader Valentine PLATEAU, Manager, International Tax KPMG Luxembourg 1)UnofficialEnglishtranslationbytheauthors.Article160LITL: « Sontpassiblesdel’impôtsurlerevenudescollectivitéspourleurrevenu indigène au sens de l’article 156, les organismes à caractère collectif de l’article159quin’ontnileursiègestatutaire,nileuradministrationcen- tralesur leterritoireduGrand-Duché ». 2)UnofficialEnglishtranslationbytheauthors.Article156LITL: «Sontconsidéréscommerevenus indigènesdescontribuablesnon-rési- dents : 1. lebénéficecommercialausensdesarticles14et15 : a)lorsqu’ilestréalisédirectementouindirectementparunétablissement stableouunreprésentantpermanentauGrand-Duché[…] ». 3)Onthattopic,pleaserefertoourotherarticles: - E. Lebas and V. Plateau, “ Administrative court judgement on tax rulingandpermanentestablishment ”,AGEFILuxembourg,October 2023,Page8. -E.LebasandV.Plateau,“ AdministrativeCourt–Judgementonre- qualification of interest-free loan as hidden capital contributions ”, May 2025,Page38. Administrative Tribunal: Judgment on Luxembourg Domestic Permanent Establishment E ndate du 27 février 2026, leConseil de gouvernement amar- qué son accord avec le projet de loi portant créationd'un complément vie chère. Cettenouvelleaidefinancières'ins- crit dans la volonté du gouverne- ment de renforcer la cohésion sociale,deluttercontrelapauvreté et de garantir un niveau de vie décentpoursesrésidents.Ainsi,la nouvelle aide vise à soutenir de manièrecibléelesménagesàreve- nusmodestes, avecunaccent par- ticulier sur les personnes âgées ainsi que les enfants scolarisés, à renforcer leur pouvoir d'achat et à promouvoirleurinclusionsociale. « Le dépôt de ce projet de loi marque une première étape importantedanslamiseenœuvre du premier Plan d'action national pourlapréventionetlaluttecontre la pauvreté. Cela montre l'ambi- tion du gouvernement à définir des mesures ambitieuses dans le cadreduPANet àprocéder à leur réalisationdans les délais », a sou- ligné leministre de la Famille, des Solidarités, du Vivre ensemble et de l'Accueil,MaxHahn. Cette nouvelle aide a la particula- ritéderegrouperetremplacerplu- sieurs aides existantes : l'allocation de vie chère, la prime énergie, l'aide financière pour personnes âgées et la subvention pour ménages à faible revenu (SMFR). En plus de l'intégration de la SMFRdansleCVC,lesménagesà revenu modeste avec des enfants scolariséssontsoutenusdavantage par une augmentation des mon- tants prévus, allant jusqu'à 3.000 euros par enfant par an. Dans ce cadre, le projet de loi innove en harmonisantlesconditionsd'éligi- bilité,lesbarèmesapplicablesetles limites de revenus, qui différaient d'une aide à l'autre, mais égale- ment en introduisant une dégres- sivité du montant du CVC en fonction du revenude la commu- nauté domestique. Enoutre,dansuneoptiquedelutte contre le non-recours aux presta- tionssociales,lesdémarchesadmi- nistratives sont simplifiées par la mise en place d'une procédure de demande unique. Au lieu de sou- mettre une demande annuelle, les ménages continuent à bénéficier du CVC, pour autant qu'ils sont éligibles. En ce qui concerne les bénéficiairesduREVIS,leCVCest versé automatiquement. Finalement,leCVCserviraentant que dispositif de référence pour l'octroi d'autres prestations sociales.Ainsi,unedispositionspé- cifique permet aux demandeurs du complément vie chère de déclencher simultanément une demande de subvention loyer, simplifiant l'accès à cette aide essentielle.Demême, les informa- tions sur les bénéficiaires seront transmises aux communes, favo- risant une meilleure coordination des aides auniveau local. ministèrede laFamille,desSolidarités, duVivreensembleetde l'Accueil Le Luxembourg lance une aide contre la vie chère MaxHan(archive)©SIP